Penn West Exploration Announces Its Financial Results for the Third Quarter Ended September 30, 2012
Nov 2, 2012
CALGARY, November 2, 2012 /CNW/ - PENN WEST PETROLEUM LTD. (TSX - PWT) (NYSE - PWE) ("PENN WEST") is pleased to announce its results for the third quarter ended September 30, 2012. All figures are in Canadian dollars unless otherwise stated.
Our strategy is to unlock intrinsic value for our shareholders by focusing on optimizing our overall business performance and execution, continued resource growth across our dominant positions in four of Western Canada's five largest light-oil resource plays and balanced financial management. In the near term, we are committed to optimizing capital and operational efficiencies and providing dividend income to our shareholders. As we gain certainty in the outlook for commodity price realizations and cost structures, we are in a position to add production growth through the development of our large light-oil plays.
FINANCIAL AND PRODUCTION
Our capital programs remain focused on our large-scale light-oil plays in Western Canada. Over the past several years, we have increased the development predictability and de-risked our drilling inventory in these plays. In addition, we have recently received external confirmation of our estimated contingent resources(1) in our Cardium and Peace River areas. Our liquids production weighting continues to rise, reaching 66 percent this quarter. Infrastructure investments over the past several years at several key plays provide the ability to add production at attractive capital efficiencies as we move into 2013.
(1) Please refer to our "Contingent Resource Disclosures" below.
EOR and Exploration
CONTINGENT RESOURCE STUDIES
(1) Please refer to our "Contingent Resource Disclosures" below.
Our capital activities throughout 2012 have been focused on the development of our key light-oil plays across the Carbonates, Cardium, Viking and Spearfish. Since the third quarter of 2011, we have completed net property dispositions with production of approximately 5,000 boe per day. In October 2012, we announced that we have agreements in principle to dispose of non-core properties for proceeds of approximately $1.3 billion, with combined production of approximately 12,000 barrels of oil equivalent per day.
COMMON SHARES DATA
Letter to our Shareholders
During the third quarter, broad macro-economic uncertainty persisted, stranding capital on the sidelines as the equity markets maintained a risk averse posture in their view of Canadian energy investments. Volatility in crude oil pricing is expected to continue. Transportation infrastructure in North America has not grown at the same pace as new crude oil production, creating bottlenecks and apportionment of pipeline space, which in turn increases volatility in both the underlying commodity as well as quality and transportation differentials for the various Canadian crude oil streams. We benefited from a narrowing Edmonton par to WTI differential in the quarter but has since widened due to heavier than normal fall refinery maintenance schedules and the temporary shut-in of the Keystone pipeline. New pipeline capacity being brought on in the coming year is expected to help narrow Canadian crude oil differentials from current levels. The outlook for natural gas improved through the summer as weekly storage injections were consistently smaller than historical norms due to increased demand from the power generation sector. This eliminated concerns of breaching storage capacity before the start of this year's winter withdrawal season. Going forward, we expect pricing for natural gas to trade in a range not significantly different than we are realizing in 2012.
Against this background of macro-economic uncertainty, and volatility in commodity prices, Penn West undertook a program to divest between $1.0 billion and $1.5 billion of non-core assets to provide greater financial and operational flexibility. Prior to year-end, it is anticipated that we will close on approximately $1.3 billion of divestitures, the proceeds from which will go toward strengthening the company's balance sheet.
In the next 12 months, Penn West's strategies will be focused on balanced financial management, continued growth in our light-oil resource base and optimizing our overall business performance and execution. On the financial side of the business, we have been actively hedging both crude oil and natural gas volumes to underpin our cash flow to fund both our capital program and the quarterly dividend. We believe that the independently substantiated one billion barrels of light oil and bitumen contingent resources(1) located on our Cardium and Peace River assets confirms our appraisal activities of the past several years. We now need to take the next step and translate this resource into value for our shareholders. Optimizing our overall business performance will require focus on two deliverables. First, improving the production reliability on our base assets through facilities optimization, automation and streamlining field operating processes. Second, improving capital efficiencies as we grow the light-oil resource side of our business.
Ultimately, we believe we will be bringing into focus a tremendous asset base with significant intrinsic value. Several months ago, we told the market that we were going to divest non-core assets and proceed on asset sales; we've done that. Now we're going to turn our attention and discipline to deliver optimized capital efficiency in our growing resource assets and reliability in our base assets. These are the next steps in the capture of our substantial intrinsic value. We remain committed to a business model that balances commodity cycles, competitive capital efficiencies and value growth with a meaningful dividend.
Murray R. Nunns
(1) Contingent resources are net best estimate figures. See "Contingent Resource Disclosures" below.
This outlook section is included to provide shareholders with information about our expectations as at November 1, 2012 for production and capital expenditures for 2012 and readers are cautioned that the information may not be appropriate for any other purpose. This information constitutes forward-looking information. Readers should note the assumptions, risks and discussion under "Forward-Looking Statements" and are cautioned that numerous factors could potentially impact our capital expenditure levels and production performance for 2012, including our current disposition program.
Our 2012 forecast exploration and development capital, net of acquisitions and dispositions closed through September 30, 2012, is expected to be in the range of $1.3 billion to $1.4 billion, slightly higher than our previous forecast. Our Board approved this incremental capital in order to optimize operational and capital efficiencies for 2013 by commencing certain 2013 projects late in 2012. This incremental capital is not expected to have any impact on 2012 production. As a result of delays in new facility construction, wet weather and facility outages during the second half of 2012, we are updating our 2012 forecast average production to between 161,000 and 163,000 boe per day.
Our prior forecast, released on August 10, 2012 with our second quarter results and filed on SEDAR at www.sedar.com, reflecting the impact of net acquisitions and dispositions completed at that date, was for 2012 average production of between 165,000 and 168,500 boe per day and exploration and development capital in the range of $1.2 billion to $1.25 billion.
Non-GAAP Measures Advisory
This news release includes non-GAAP measures not defined under International Financial Reporting Standards ("IFRS") including funds flow, funds flow per share-basic, funds flow per share-diluted and netback. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Funds flow is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures. Funds flow is used to assess our ability to fund dividends and planned capital programs. See "Calculation of Funds Flow" below. Netback is a per-unit-of-production measure of operating margin used in capital allocation decisions, to economically rank projects and is the per unit of production amount of revenue less royalties, operating costs, transportation and realized risk management.
Calculation of Funds Flow
Oil and Gas Information Advisory
Barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis is misleading as an indication of value.
References to three-month average production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter. Additionally, such rates may also include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers are cautioned not to place undue reliance on such rates in calculating the aggregate production for Penn West.
Contingent Resource Disclosures
In this press release, Penn West discusses the results of two recently completed independent resource evaluation studies which include an AJM Deloitte ("AJM") contingent resource evaluation dated October 16, 2012 and effective July 31, 2012, for Penn West's Cardium properties and a Sproule Unconventional Limited ("Sproule") contingent resource evaluation report effective September 30, 2012 for Penn West's interest in the Peace River Oil Partnership (the "PROP"). Penn West holds a 55 percent interest in PROP and all figures presented in this release in respect of PROP assets reflect Penn West's 55 percent interest. This release contains certain information reproduced from both the AJM Report and the Sproule Report, but does not contain either report in its entirety.
AJM has assigned contingent resources of 533 million barrels of oil in the best estimate case for Penn West's Cardium properties. Sproule has assigned contingent resources of 473 million barrels of bitumen in the best estimate case for Penn West's interest in the PROP assets.
The contingent resource assessments prepared by AJM and Sproule were prepared in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook") and National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Contingent resource is defined in the COGE Handbook as those quantities of petroleum estimated to be potentially recoverable from known accumulations using established technology or technology under development, but which do not currently qualify as reserves or commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. There is no certainty that it will be commercially viable to produce any portion of the contingent resources.
The economic viability of Penn West's Cardium contingent resources is undetermined, as economic studies have not yet been completed. All of PROP's contingent resources are considered economic using Sproule's September 30, 2012 forecast prices.
Under the COGE Handbook and NI 51-101, naturally occurring hydrocarbons with a viscosity greater than 10,000 centipoise are classed as bitumen. The majority of the contingent resource at PROP will be recovered by thermal processes.
Please refer to our press release dated October 17, 2012 "Penn West Updates Asset Dispositions and Results of the Contingent Resources Studies" for further information.
In the interest of providing our securityholders and potential investors with information regarding Penn West, including management's assessment of our future plans and operations, certain statements contained in this document constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of the "safe harbour" provisions of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "objective", "aim", "potential", "target" and similar words suggesting future events or future performance. In addition, statements relating to "reserves" or "resources" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.
In particular, this document contains forward-looking statements pertaining to, without limitation, the following: our belief that we have one of the largest inventories of low-risk light oil projects in North America; our intention to unlock intrinsic value for our shareholders by focusing on optimizing our overall business performance and execution, continued resource growth across our dominant positions in four of Western Canada's five largest light-oil resource plays and balanced financial management; our intention to optimize capital and operational efficiencies and providing dividend income to our shareholders; the details of our fourth quarter dividend; our expectation to complete the disposition of certain non-core properties for proceeds of approximately $1.3 billion prior to December 31, 2012 and our intentions to use the proceeds of such dispositions to repay a portion of the advances under our credit facilities and to strengthen our balance sheet; our intention to continue to focus our capital program on our large-scale light-oil plays in Western Canada; our expectation that we will be able to add production at attractive capital efficiencies in 2013 as a result of infrastructure investments over the past several years; our expectation that available incremental production capacity within the Slave Point area to total 24,000 boe per day by mid-2013; our plans to leverage our infrastructure investments by focusing on half-cycle development and producing into expanded infrastructure; our plans to conduct water flood pilots to test the long-term viability of enhanced oil recovery in select portions of the Slave Point area; our plans to continue improving efficiencies in 2013 in the Cardium trend in part by leveraging our significant existing and expanded infrastructure, selectively drilling in certain areas, and continuing to optimize our completion techniques; our intention to continue to evaluate and expand our waterflood pilot in the West Pembina area; our intention to continue focused development on the Saskatchewan side of the Viking play and targeted secondary recovery and continued resource appraisal on the Alberta side of the Viking play; our plan to continue focused development to expand production to match our existing facility capacity in the Spearfish area; our expectation that a liquids extraction plant in the Spearfish area will be on-stream by mid-2013 and that it will further increase the deliverability and value of the Spearfish play; our expectation that full gas conservation will follow in the Spearfish area in 2014; our belief that we have significant potential to increase the recoverability across our major plays through the use of waterflood and other enhanced recovery techniques; our expectation that crude oil pricing will be volatile for the foreseeable future; our belief that new pipeline capacity being brought on in the coming year will help narrow Canadian crude oil differentials from current levels; our expectation that pricing for natural gas to trade in a range that is not significantly different than we are realizing in 2012; our intention over the next 12 months to focus on balanced financial management, continued growth in our light-oil resource base and optimizing our overall business performance and execution; our belief that in the future we will be bringing into focus a tremendous asset base with significant intrinsic value; and certain disclosures contained under the heading "Outlook" relating to our 2012 forecast exploration and development capital and expectations of 2012 forecast average production.
With respect to forward-looking statements contained in this document, we have made assumptions regarding, among other things: future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices and Canadian, WTI and world oil prices; future capital expenditure levels; future crude oil, natural gas liquids and natural gas production levels; drilling results; future exchange rates and interest rates; the amount of future cash dividends that we intend to pay and the level of participation in our dividend reinvestment plan; our ability to deleverage our balance sheet by disposing of non-core assets; our ability to obtain equipment in a timely manner to carry out development activities and the costs thereof; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms, including our ability to renew or replace our credit facility and our ability to finance the repayment of our senior unsecured notes on maturity; and our ability to add production and reserves through our development and exploitation activities. In addition, many of the forward-looking statements contained in this document are located proximate to assumptions that are specific to those forward-looking statements, and such assumptions should be taken into account when reading such forward-looking statements: see in particular the assumptions identified under the heading "Outlook". In particular, it should be noted that our current guidance for our forecast exploration and development capital expenditures for 2012 and our forecast average production levels for 2012 does not take into account our expectation to sell non-core assets for proceeds of approximately $1.3 billion prior to December 31, 2012; any such sales could have a material impact on our guidance.
Although we believe that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the impact of weather conditions on seasonal demand and ability to execute capital programs; risks inherent in oil and natural gas operations; uncertainties associated with estimating reserves and resources; competition for, among other things, capital, acquisitions of reserves, resources, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; geological, technical, drilling and processing problems; general economic conditions in Canada, the U.S. and globally; industry conditions, including fluctuations in the price of oil and natural gas; royalties payable in respect of our oil and natural gas production and changes thereto; changes in government regulation of the oil and natural gas industry, including environmental regulation; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed, including wild fires and flooding; failure to obtain industry partner and other third-party consents and approvals when required; stock market volatility and market valuations; OPEC's ability to control production and balance global supply and demand of crude oil at desired price levels; political uncertainty, including the risks of hostilities, in the petroleum producing regions of the world; the need to obtain required approvals from regulatory authorities from time to time; failure to realize the anticipated benefits of dispositions, acquisitions, joint ventures and partnerships; failure to deleverage our balance sheet by disposing of non-core assets; changes in tax and other laws that affect us and our securityholders; changes in government royalty frameworks; uncertainty of obtaining required approvals for acquisitions and mergers; the potential failure of counterparties to honour their contractual obligations; and the other factors described in our public filings (including our Annual Information Form) available in Canada at www.sedar.com and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
Penn West shares are listed on the Toronto Stock Exchange under the symbol PWT and on the New York Stock Exchange under the symbol PWE.
A conference call will be held to discuss Penn West's results at 10:00am Mountain Time (12:00pm Eastern Time) on November 2, 2012.
To listen to the conference call, please call 647-427-7450 or 1-888-231-8191 (North America toll-free). This call will be broadcast live on the Internet and may be accessed directly on the Penn West website at www.pennwest.com or at the following URL:
A digital recording will be available for replay two hours after the call's completion, and will remain available until November 16, 2012 21:59 Mountain Time (23:59 Eastern Time). To listen to the replay, please dial 416-849-0833 or 1-855-859-2056 (North America toll-free) and enter Conference ID 55355345, followed by the pound (#) key.
SOURCE: Penn West Exploration
For further information:
PENN WEST EXPLORATION
Murray Nunns, President & Chief Executive Officer
Clayton Paradis, Manager, Investor Relations